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Is Caesars Entertainment Corporation (CZR) Going to Burn These Hedge Funds?

Nina Todic

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 26.2% through November 22nd (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 34.7% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Caesars Entertainment Corporation (NASDAQ:CZR).

Caesars Entertainment Corporation (NASDAQ:CZR) was in 45 hedge funds' portfolios at the end of the third quarter of 2019. CZR has seen a decrease in activity from the world's largest hedge funds in recent months. There were 48 hedge funds in our database with CZR holdings at the end of the previous quarter. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30614" align="aligncenter" width="489"] Howard Marks of Oaktree Capital Management[/caption]

Howard Marks OAKTREE CAPITAL MANAGEMENT

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the fresh hedge fund action encompassing Caesars Entertainment Corporation (NASDAQ:CZR).

How have hedgies been trading Caesars Entertainment Corporation (NASDAQ:CZR)?

Heading into the fourth quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. By comparison, 62 hedge funds held shares or bullish call options in CZR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CZR Positions

Among these funds, Icahn Capital held the most valuable stake in Caesars Entertainment Corporation (NASDAQ:CZR), which was worth $1332.2 million at the end of the third quarter. On the second spot was Canyon Capital Advisors which amassed $624.5 million worth of shares. Oaktree Capital Management, Magnetar Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lafitte Capital Management allocated the biggest weight to Caesars Entertainment Corporation (NASDAQ:CZR), around 20.44% of its portfolio. Falcon Edge Capital is also relatively very bullish on the stock, designating 14.44 percent of its 13F equity portfolio to CZR.

Because Caesars Entertainment Corporation (NASDAQ:CZR) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Nick Niell's Arrowgrass Capital Partners cut the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth about $73.9 million in call options. Don Morgan's fund, Brigade Capital, also sold off its call options, about $44.9 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Caesars Entertainment Corporation (NASDAQ:CZR) but similarly valued. We will take a look at ON Semiconductor Corporation (NASDAQ:ON), Zions Bancorporation, National Association (NASDAQ:ZION), Kilroy Realty Corporation (NYSE:KRC), and PTC Inc (NASDAQ:PTC). This group of stocks' market values are similar to CZR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ON,22,428054,-4 ZION,29,468677,-6 KRC,23,218142,7 PTC,29,809421,6 Average,25.75,481074,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $3756 million in CZR's case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand ON Semiconductor Corporation (NASDAQ:ON) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Corporation (NASDAQ:CZR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on CZR as the stock returned 11.5% during Q4 (through 11/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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